Question

1. A security makes monthly payment of $50 for 5years. The monthly payment is expected to grow at 1%.   What should be the return if it is sold at $2,000?

2. Current stock price of Google is $1,000. The market expects the price will be $1,700 in 2 years. What should be the return over the next two years if return is continuously compounded?

3. Given the information below, please calculate the profits of the following treasury STRIPS.

Treasury STRIPS: based on a 3-year treasury with coupon rate of 10% and par value of $1,000. (The coupon payment is made semiannually.)

US Treasury Bonds
Maturity	Yield (%)
6 Month	2.00
1 year	2.50
1.5 Year	3.00
2 Year	3.50
2.5 Year	4.00
3 Year	5.00

4. A 30-year corporate bond with interest rate of 10% is traded at $950. Please estimate the coupon rate for the bond given par value=$1,000.

5. A security makes monthly payment of $50 forever in the beginning of each month. What should be the return if it is sold at $4,000?

6. A security makes monthly payment of $25 for 20 years. The monthly payment is expected to grow at 1%.   What should be the return if it is sold at $3,800?

7. A security makes monthly payment of $50 forever. The monthly payment is expected to grow at 1%.   What should be the return if it is sold at $2,000?

1. Does yield curve predict the equity value in the future?

(https://stockcharts.com/freecharts/yieldcurve.php)

2. Please use a scientific approach to verify your answer in 1).

(Suggestion: use monthly data for yield curve and SPY to conduct a Granger-causality test)

Answer 1

I can only answer 1 question at a time, so I am answering only question 1.

1. Let monthly rate of return = r
Therefore, yearly rate of return = r*12

Using sum of geometric progresssion formula,

Solving using equation solver, we get, r = 0.024151
yearly rate of return = 0.024151*12 = 0.2898 = 28.98%

Please do rate me and mention doubts, if any, in the comments section.